Question 1

Which of the following will cause consumption, and as a result, aggregate demand, to decrease?
A)a tax cut
B)a fall in consumer confidence
C)increased population
D)an optimistic forecast of future income growth

Accepted Answer

A fall in consumer confidence will cause individuals to decrease their spending and consumption, leading to a decrease in aggregate demand. A tax cut and an optimistic forecast of future income growth may increase consumption and aggregate demand. Increased population may have an ambiguous effect on consumption and aggregate demand.

Question 2

If some non-price level determinant causes total spending to increase, then the effect on aggregate demand will be a:
A)movement upward along the curve.
B)movement downward along the curve.
C)shift to the left.
D)shift to the right.

Accepted Answer

Any non-price level determinant that increases total spending will cause a shift to the right of the aggregate demand curve, as it represents a greater willingness to spend at each price level. This could be due to factors such as an increase in consumer confidence, a decrease in taxes or interest rates, or an increase in government spending. Therefore, the correct choice is D, a shift to the right.

Question 3

In an open economy as the price level decreases, a(n) ____ in demand for domestic goods relative to foreign goods results in a(n) ____ in the quantity of RGDP demanded.
A)increase, decrease
B)increase, increase
C)decrease, decrease
D)decrease, increase

Accepted Answer

When the price level decreases in an open economy, domestic goods become relatively cheaper compared to foreign goods. This leads to an increase in demand for domestic goods relative to foreign goods, which in turn results in an increase in the quantity of Real Gross Domestic Product (RGDP) demanded.

Question 4

Which of the following do not increase U.S.aggregate demand?
A)a lower price level, increasing citizen's real wealth
B)a lower price level, reducing interest rates
C)a lower price level, increasing exports and decreasing imports
D)All of the above increase U.S. aggregate demand.
E)None of the above increase U.S. aggregate demand.

Accepted Answer

Lowering the price level increases the purchasing power of households and firms, thus increasing demand. However, reducing interest rates stimulates borrowing and consumption, increasing demand. Increasing exports and decreasing imports increase net exports and thus aggregate demand. Therefore, none of the given choices reduce aggregate demand.

Question 5

Which of the following increases U.S.aggregate demand?
A)a lower price level, increasing citizen's real wealth
B)a lower price level, reducing interest rates
C)a lower price level, increasing exports and decreasing imports
D)an increase in Americans' expected future incomes
E)All of the above increase U.S. aggregate demand.

Accepted Answer

An increase in Americans' expected future incomes boosts consumer confidence and spending, directly increasing aggregate demand. The other options describe effects of a lower price level, which do not directly increase aggregate demand.

Question 6

In an open economy, as the price level increases, a(n) ____ in demand for domestic goods results in a(n) ____ in the quantity of RGDP demanded.
A)increase, decrease
B)increase, increase
C)decrease, decrease
D)decrease, increase

Accepted Answer

As the price level increases, domestic goods become more expensive relative to foreign goods, leading to a decrease in demand for domestic goods and a decrease in the quantity of real GDP demanded.

Question 7

Which of the following will decrease aggregate demand?
A)exports rising faster than imports
B)exports falling faster than imports.
C)exports rising the same amount as imports
D)exports rising and imports falling

Accepted Answer

When exports fall faster than imports, it means that the net exports (exports - imports) have decreased. Since net exports is a component of aggregate demand, a decrease in net exports will lead to a decrease in aggregate demand.

Question 8

Investment will decrease if business taxes ____, real interest rates ____, or if business confidence ____.
A)increase, increase, increases
B)decrease, decrease, decreases
C)increase, increase, decreases
D)decrease, decrease, increases

Accepted Answer

When business taxes increase, firms have less funds available to reinvest and grow their operations, thereby decreasing investment. Similarly, when real interest rates increase, it becomes more expensive for firms to borrow money to invest in their operations, again leading to a decrease in investment. Finally, if business confidence decreases, firms may be more hesitant to invest in new projects, leading to a decrease in overall investment. Therefore, a decrease in investment will occur if business taxes, real interest rates increase or if business confidence decreases. Choice (C) is the only option that includes all three factors increasing or decreasing in the correct direction.

Question 9

As the price level increases, households and firms holdings of money ____, interest rates ____, investments ____, and the quantity RGDP demanded ____.
A)increases, decrease, increase, decreases
B)increases, increase, increase, decreases
C)decreases, decrease, decrease, increases
D)decreases, decrease, increase, increases
E)increases, increase, decrease, decreases

Accepted Answer

As the price level increases, households and firms need more money for transactions, leading to increased demand for money. This causes interest rates to rise, which discourages investment spending. Consequently, the quantity of real GDP demanded decreases.

Question 10

During the 1970s, U.S.prices generally rose faster than prices in other parts of the world.Which of the following changes would the Open Economy Effect predict took place in response to these price level changes?
A)Americans reduced the proportion of foreign goods bought since their foreign prices became relatively lower.
B)Americans reduced the amount of investment they undertook because interest rates increased.
C)Americans reduced the amount of goods and services they wanted to purchase for consumption because they felt less wealthy.
D)Americans reduced the fraction of purchases they made from domestic producers of goods and services since foreign prices became relatively lower.

Accepted Answer

The Open Economy Effect predicts that a rise in prices in one country relative to other countries will lead to a shift in consumption towards relatively cheaper foreign goods. Therefore, in response to the relatively higher U.S. prices in the 1970s, Americans would have reduced the fraction of purchases they made from domestic producers of goods and services, choosing instead to buy relatively cheaper foreign goods. Option D describes this shift in consumption pattern.

Question 11

Which of the following decreases U.S.aggregate demand?
A)a lower price level, increasing citizen's real wealth
B)a lower price level, reducing interest rates
C)a lower price level, increasing exports and decreasing imports
D)an increase in Americans' expected future incomes
E)None of the above decrease U.S. aggregate demand.

Accepted Answer

A lower price level generally increases aggregate demand by increasing real wealth, reducing interest rates, and boosting exports. An increase in expected future incomes also increases aggregate demand. Therefore, none of the options decrease aggregate demand.

Question 12

Which of the following will cause consumption, and as a result, aggregate demand, to shift to the right?
A)an optimistic business forecast of future income growth
B)increased consumer wealth
C)an increase in consumer confidence
D)a tax cut
E)All of the above.

Accepted Answer

All of the choices listed will cause consumption to increase and shift aggregate demand to the right. If businesses are optimistic about future income growth, they are more likely to invest and hire, which increases consumer incomes and spending. Increased consumer wealth also leads to more spending as people have more disposable income. A rise in consumer confidence means people feel more secure about their financial future and are more likely to spend money. Lastly, a tax cut will leave people with more money to spend or save, both of which contribute to higher aggregate demand.

Question 13

If the stock market continues a steady climb upwards, this ____ consumer confidence and wealth, leading to ____ consumption, and ____ aggregate demand.
A)increases, decreased, increased
B)decreases, decreased, decreased
C)increases, increased, increased
D)increases, increased, decreased

Accepted Answer

A steady climb in the stock market would increase consumer confidence and wealth, as people see their investments and retirement accounts grow. This, in turn, would lead to increased consumption as people feel more secure with their finances. The increase in consumption would ultimately lead to increased aggregate demand in the economy. Therefore, option C is the best choice.

Question 14

An economic boom in China is likely to lead to a(n):
A)decrease in U.S. exports and U.S. aggregate demand.
B)increase in U.S. exports and U.S. aggregate demand.
C)decrease in U.S. imports and U.S. aggregate demand.
D)increase in U.S. imports and U.S. aggregate demand.

Accepted Answer

An economic boom in China would likely lead to an increase in demand for goods and services, which would increase the demand for imports. As a result, this would lead to an increase in U.S. exports and U.S. aggregate demand.

Question 15

Which of the following are likely to increase investment and as a result, aggregate demand?
A)decreased demand for investment goods
B)falling real interest rates
C)rising real interest rates
D)increased business taxes
E)All of the above.

Accepted Answer

Falling real interest rates will decrease the cost of borrowing, making it cheaper for firms to invest. This will encourage investment, which will increase aggregate demand. The other choices, decreased demand for investment goods, rising real interest rates, and increased business taxes, are likely to decrease investment and reduce aggregate demand.

Question 16

Pierre is French Canadian, and like many Canadians he is experiencing booming good economic times.His good fortune is likely to impact U.S.aggregate demand in what way?
A)Positively, because he prefers to make all his purchases in Canada from Canadian firms.
B)Negatively, because he prefers to make all his purchases in Canada from Canadian firms.
C)Negatively, since we are all members of North American Free Trade Zone.
D)Positively, since he will be in a better position to purchase U.S.-made goods.

Accepted Answer

Pierre's good economic fortune means that he is likely to have more money to spend. This could lead him to purchase more U.S.-made goods, positively impacting U.S. aggregate demand.

Question 17

Investment will increase if business taxes ____, real interest rates ____, or if business confidence ____.
A)increase, increases, increases
B)decrease, decrease, decreases
C)increase, increases, decreases
D)decrease, decrease, increases

Accepted Answer

Investment is more likely to increase if business taxes decrease (making investment more attractive), real interest rates decrease (making borrowing cheaper), and business confidence increases (indicating optimism about future economic conditions).

Question 18

Which of the following will not cause consumption, and as a result, aggregate demand, to increase?
A)an optimistic business forecast of future income growth
B)a tax cut
C)an increase in consumer confidence
D)a tax increase
E)increased consumer wealth

Accepted Answer

A tax increase will decrease disposable income, reducing consumer spending and thus decreasing aggregate demand.

Question 19

Which of the following would lead to an increase in aggregate demand?
A)an increase in consumer confidence
B)a decrease in the overall price level
C)an improvement in labor productivity
D)all of the above

Accepted Answer

An increase in consumer confidence will lead to an increase in consumption, which is a component of aggregate demand.

Answer: D
 
- An increase in consumer confidence will lead to an increase in consumption, which is a component of aggregate demand. 
- A decrease in the overall price level will lead to an increase in consumption, investment, and net exports since goods and services are now cheaper, which increases the purchasing power of individuals, firms, and foreigners. Therefore, these components of aggregate demand will increase. 
- An improvement in labor productivity results in cost savings and better efficiency, which can lead to a reduction in prices, making goods and services cheaper. This increases the purchasing power of consumers and firms, which leads to an increase in consumption and investment, respectively. As a result, aggregate demand will increase.

Question 20

If some non-price level determinant causes total spending to decrease, then the effect on aggregate demand will be a:
A)movement upward along the curve.
B)movement downward along the curve.
C)shift to the left.
D)shift to the right.

Accepted Answer

If a non-price level determinant causes total spending to decrease, then it will shift the entire aggregate demand curve to the left. This is because aggregate demand is affected by factors such as changes in income, consumer confidence, and government spending, among others. A decrease in total spending would indicate a decrease in the overall demand for goods and services in the economy, which would shift the aggregate demand curve to the left.

Quiz 13: Aggregate Demand and Aggregate Supply

Which of the following will cause consumption, and as a result, aggregate demand, to decrease?

If some non-price level determinant causes total spending to increase, then the effect on aggregate demand will be a:

In an open economy as the price level decreases, a(n) in demand for domestic goods relative to foreign goods results in a(n) in the quantity of RGDP demanded.

Which of the following do not increase U.S.aggregate demand?

Which of the following increases U.S.aggregate demand?

In an open economy, as the price level increases, a(n) in demand for domestic goods results in a(n) in the quantity of RGDP demanded.

Which of the following will decrease aggregate demand?

Investment will decrease if business taxes , real interest rates , or if business confidence .

As the price level increases, households and firms holdings of money , interest rates , investments , and the quantity RGDP demanded .

During the 1970s, U.S.prices generally rose faster than prices in other parts of the world.Which of the following changes would the Open Economy Effect predict took place in response to these price level changes?

Which of the following decreases U.S.aggregate demand?

Which of the following will cause consumption, and as a result, aggregate demand, to shift to the right?

If the stock market continues a steady climb upwards, this consumer confidence and wealth, leading to consumption, and aggregate demand.

An economic boom in China is likely to lead to a(n) :

Which of the following are likely to increase investment and as a result, aggregate demand?

Pierre is French Canadian, and like many Canadians he is experiencing booming good economic times.His good fortune is likely to impact U.S.aggregate demand in what way?

Investment will increase if business taxes , real interest rates , or if business confidence .

Which of the following will not cause consumption, and as a result, aggregate demand, to increase?

Which of the following would lead to an increase in aggregate demand?

If some non-price level determinant causes total spending to decrease, then the effect on aggregate demand will be a: